The inormaTion Technology & innovaTion oundaTion
A second factor limiting the discourse is the belief of many that innovation is “manna from heaven” thateither just happens or perhaps occurs if we raise theprice of carbon by some modest amount. But in fact,innovation in general, and energy innovation in par
ticular, is a quite difcult and complex process that is
dependent on much more than modest price signals.
Energy innovation requires a coherent energy innova
Third, as we note in a forthcoming ITIF report, the cli
-mate change debate has to date largely been shaped by
several dominant and competing economic doctrinesor worldviews, each with a different approach, orienta
-tion, and bias toward certain policies and actions.Here are ten widespread myths about how we addressglobal warming and grow a green economy that de-mand our attention.
1) HigHeR pRices on gReenHouse gAses AReenougH to DRive tHe tRAnsition to A cleAneconomy
Reality: Better price signals are helpul, but not su- cient in signicantly reducing GHG.
The dominant policy approach to reducing GHG and
boosting U.S. clean energy industrial competitivenessfocuses on establishing a price on emissions of carbon
dioxide and other global warming pollutants throughcarbon taxes or cap and trade. Proponents includeeconomists likeGreg Mankiw, Glenn Hubbard, Wil-liam Nordhaus, scientists like Joe Romm and James
Hansen, and virtually all of the environmental com
But it is naïve to believe that these policies cansucceed on their own for several reasons.First, for many clean energy technologies to be com
petitive with fossil fuels, governments would have toset very high prices for carbon pollution, and typically governments face stiff political resistance to doing so.
Thus, political considerations mean that any carbonprice (through tax or cap and trade) established will be
relatively low, as in currently pending U.S. climate andenergy legislation, which would establish a price aver
aging roughly $15 per ton of CO2-equivalent for therst decade of the program (2012-2021) – the equiva
lent of a roughly 15 cent increase in the price of a gal
lon of gasoline.
Even if it were politically feasible to hike carbon prices
radically, we still cannot assume it would induce chang-
es in behavior. If higher carbon prices are really the key
to spurring change, then more Europeans would be
driving around in electric cars. Europeans (and the restof us) will drive electric cars when we have better bat
teries (and the infrastructure that supports electric ve
-hicles). In many European nations the price on carbon
for transportation fuels is around $400 per ton, whichis the amount reected in their overall transportationfuel taxes. Yet, while the high tax induces Europeansto drive smaller cars and drive less than Americans,
it has not induced them to switch to electric cars. In
fact, there are virtually no electric cars in Europe. Thereason is simple. Price signals only lead to behaviorchange when there is a viable substitute. If beef sud
denly tripled in price this summer, Americans would begrilling a lot more chicken. Preferences aside, there isa less expensive substitute for beef – and a pretty good
one at that. This is not the case when it comes to energy
alternatives. Electric cars, for example, are still at the
prototype stage as a practical matter and priced well
out of reach for most consumers. Even those who canafford these vehicles face an inadequate infrastructurefor widespread use. And as discussed below, let’s notfall into the trap of thinking that if the world achievedEuropean driving habits (smaller cars and fewer milesdriven per capita) that GHG emissions would go downby 2050. In fact, with the massive expected increase
in automobile ownership globally, they will go up dra-matically.
If higher carbon prices are really the key to spurring change, then more Europeans would be driving around in electric cars.Europeans (and the rest of us) will drive electric cars when we have better batteries (and the infrastructure that supports electric vehicles).
Also consequential is that an economy-wide carbonprice would not overcome specic barriers to the adop
tion of particular technologies. While a modest carbon
price may help some lower-cost and more mature cleanenergy technologies (e.g., wind power) become more
competitive with fossil fuels, it will do little for less ma
ture and currently more expensive technologies such as